Tax Avoidance as the New "Sin"

The modern version of: "Let he who is without sin cast the first stone" has arrived. It is: "Let he (or she) who has told his accountant to pay every penny of the taxes owed the Federal and State governments, cast the first stone."

If we were to take a survey of how many clients actively direct their accountants to: "Make sure that I pay all the taxes that the federal and state governments are entitled to," I wonder what percentage of all taxpayers would come up.

Compounding the situation is the fact that most accountants by profession are not very effective at confrontation and many feel that they will curry favor with their clients if they find clever, "creative" but legal ways to minimize tax obligations. As a profession I don't imagine there are many in it who practice advising clients to pay all the taxes they owe or else they will refuse to work for them.

I am not condoning this behavior, but here is a solution: In order for the America and the Americans who live in it to be in integrity with each other, either all Americans who "creatively" but legally find ways to avoid paying taxes should be prosecuted and penalized or the code of values of America should be changed to "Finding creative but legal ways of avoiding paying taxes is more important than paying the taxes you legitimately and ethically owe."

Comments

[hl7]

Dr. Goulston, I find your post confusing. I think the issue in all three of the Obama nominee cases was they accidentally failed to pay some tax that was clearly owed, not that they got overruled on a judgment call. As far as "creatively" finding legal ways not to pay taxes, as long as the method used to avoid taxes is legal, the government has no right to claim those taxes. Indeed, the government actively uses tax deferrals and other incentives to encourage individuals to make financial choices, like funding IRAs and 401(k)s and even buying hybrid cars. Using a CPA to take full advantage of these policies is not just OK, for most people it is an essential for responsible financial planning.

[AnotherMcIntosh]

With all due respect, how can you conclude that "the issue in all three of the Obama nominee cases was they accidentally failed to pay some tax that was clearly owed."

When Geithner, for example, paid for his children's recreational expenses by sending them to summer camp, how can anyone reasonably conclude that he ACCIDENTALLY claimed false and unauthorized deductions for such private recreational expenses. The law doesn't allow such deductions for private recreation expenses, and he could only pretend that he was entitled to them by falsely characterizing them as something else.

When Daschle rendered services and received compensation which included a limo and a driver, how did he accidentally report and pay taxes on his other compensation but somehow accidentally fail or refuse to report and pay taxes on all the compensation that he received?

Accidental?

The law presumes that a person intends the natural consequences of their voluntary actions.

[hl7]

It may be that these were deliberate attempts to conceal income. As you note, there even appears to be some evidence that at least Geithner knew what he was doing. Personally, I think this might bear a little more investigation. But at this point, I am not sure exactly what happened, so I err on the side of accepting their explanations at face value. Having made a few honest tax errors myself (though none anywhere near this magnitude) I can see how it might happen. Sorry about that.

In any case, the point I am trying to make is that the failures here are not close calls, but clear errors, accidental or otherwise. With the possible exception of taking child care deductions for summer camp, they do not appear to be attempts to mischaracterize income or deductions so much as failure to report income. Dr. Goulston seems to be equating the two. Re-thinking it, the example you cite of the child care deductions may indeed fall into the "creative" category that Dr. Goulston describes, though as you also point out this is clearly unacceptable, and he or his accountant should have known it. Still, I personally do not feel it is illegitimate to seek as many tax deductions as the law allows, and it may even be irresponsible not to do so.

[bygollymissmolly]

I wonder if the Republicant's latest mouthpiece, Joe the Plumber, ever paid the taxes he owed for so long they had to put a lien on his home? Now that's a tax cheat. He knew he owed the taxes and neglected to do so.

Whereas with Daschle and Geithner, their tax accountants made mistakes on their tax returns and when they found out about the mistakes, they made good and paid their taxes and penalties.

There's a very big difference between someone who makes a mistake on their tax returns and then when discovers the mistake makes good, and someone who either willfully refuses to pay their taxes or someone who puts their money into tax shelters to avoid paying taxes.

[cruzy]

Sorry, but tax accountants are not all-knowing deities. They are individuals who rely on information provided by their clients to determine what to report. There is NO evidence that Mr. Daschle's accountant ever told him that receiving a chauffeured car from a company paying him for consulting services was not itself an additional form of taxable compensation. In fact, Mr. Dashle admits he happily took the service for quite a long time and never really thought about it much until shortly before his nomination when he suddenly got concerned about it and supposedly told his accountant to "look into it"---no word as to what his accountant ever reported back after "looking into it."

As for Mr. Geithner, on at leas two of the years in question with erroneous tax returns, it was Mr. Geithner himself who prepared his own return using Turbo Tax. The software merely reports what the user punches into it. Mr. Geithner was TOLD by his employer, the World Bank, that he was liable for Social Security tax; he even signed a document acknowledging his liability. His employer also PAID him extra money to pay his Social Security tax and provided him with QUARTERLY reports telling him precisely how much to pay over to the IRS. So, did he just think the WORLD BANK didn't know what it was talking about? And if so, wasn't it unethical of him to continue accepting money his employer was paying to him specifically to pay tax?

[bygollymissmolly]

The problem is, making a mistake on your income taxes is not "tax avoidance" or "tax evasion".

Tax evasion is when you move your money into an off-shore tax shelter to avoid paying US taxes, be it an individual or a corporation.

That is way bigger a problem for us than people who make mistakes on complicated income tax forms.

[MBWinters]

Greetings Citizens....

If we would have implemented some form of the fair tax (national consumption tax or a flat tax) there wouldn’t be any need to have this discussion. The tax code is too complicated and it is easy for just about anyone to let something slide. I am neither defending nor making excuses for those who willfully cheat or avoid paying their taxes; but trying to cope with a complicated tax code really makes it difficult to monitor and review each person-much similar to trying to enforce every road that has a speed limit sign. Anyone of us could at any given moment could be ticketed for speeding even as little as 1 mph over the limit but most of us know that most jurisdictions will allow as much as a 5-8 mph variance in the speed of the vehicle, knowing that what do we do we set our cruise controls to that level.

A simplified tax code would remove many of these opportunities to push the limits of our idea of acceptable tax reporting; while freeing up resources to conduct compliance audits on a broader scale. It wouldn’t be hard for us-if Russia and many the former communist countries can implement Forbes’s idea of a simple flat tax then why can’t we be as democratic. Maybe we should ask our congressional leaders and the tax accountants and lawyers involved with the collusion about it.

Warm regards,

Michael Winters
New Patriot of America

[LeftRight]

Nevermind the fact that your so-called "fair tax" is not only the most regressive form of taxation (like any other purely consumption tax!) it's also patently obvious that the creators of such didn't pass a basic math class. They eliminated pretty much everything that the rich spend money on from the tax base, and then pretended like they had ADDED things which would be taxed. In order for the "fair tax" to work the rates would have to be set at closer to 80%!!!!

[VikingQuest]

I think it is a sin and possibly the dumbest move ever to appoint a tax cheat as the head of the IRS.

[bygollymissmolly]

Making a mistake on your income tax does not make someone a "tax cheat". I have made mistakes on my taxes a couple of times and I certainly don't consider myself a cheat.

Now the rich people who put their money in off-shore tax shelters to avoid paying US income taxes, that's a tax cheat.

[AnotherMcIntosh]

It is even possible that Obama and his closest advisors have never even considered the effect that this is going to have upon the morale of the IRS employees.

Each and everyone of them is going to know that Geithner paid for his children's recreational expenses by sending them to summer camp and then he sought to shift part of the cost to the taxpaying public by falsely claiming a deduction for such expenses.

They will also know that this tax cheat was specifically advised in writing that he had an obligation certain employment taxes and he elected to not do so until he got caught.

Whatever the down-stream effect is going to be, it cannot be a positve one.

[moAb]

It is unreal that a former senator/lawyer with years of experience in govt. including tax issues would not pay his taxes. It is also unreal that the McKinsey lady (performance officer nominee) had tax issues and nanny issues as well after years as a business consultant including years overhauling how taxes are collected in the US Treasury. It is unreal that Geitner gets away with his tax issues by saying he is sorry and the belief that Obama and others hold that he is the only one in the universe who can solve our banking problems. These people are just about as bad as the bankers everyone is howling about. They may be even worse...at least the bankers admit their motive is profit maximizaiton. The pols want you to believe (paraphrasing Sally Fields) 'that they really, really like you".

[bygollymissmolly]

So, how do you feel about all the rich people and corporations who put their money in off-shore tax shelters to avoid paying US income taxes. I think that's a much bigger problem than people who made a mistake on their income tax return.

[Konnie]

you bet your fat cat ass its the new sin! and its an old crime!!!!!!!!!!!!!

the best line i ever heard was a comment by Bill Gate's father:

TAXES ARE THE RENT WE PAY TO LIVE IN AMERICA.

And as long as its my tax dollars bailing out banks and wall street,
that i have to cough up EVERY WEEK, OUT OF MY
GROSS PAY, yeah - everyone else had better chip in as much or more than i do.

sitting in the back of limo does not equal standing on your feet all way, bending
and stoopin over a row of vegatables, or crawling around in a coal mine, Mr. Dashcle!
What was the name of Arrianna's book again - oh yeah - PIGS AT THE TROUGH!!!!!!!!

WHEN YOU MAKE SO MUCH MONEY IN A YEAR YOU CAN'T REMEMBER IT........WELL
THERE IS JUST SOMETHING WRONG, REALLY WRONG.

I MEAN DOESN'T HE HAVE "PEOPLE"
LOLOLOLOLOLOL

[dragonlady620]

The IRS is one big cheat in any case. Don't forget that this country was founded on tax revolt-and it is inappropriate that they should be allowed to keep their machinations secret. "Transparency in government" definitely needs to extend to the IRS-and to the Fedreral Reserve Board as well. I see no excuse for either to keep what they are doing from the public when they are dealing with public money.
WHO WROTE THE TAX LAWS?
WHO OVERSEES THE IRS?

[CaptainObvious]

The "TARP" as bush deployed it is unconstitutional (not that anyone pays any attention to that anymore).

From Article I, Section 9:

"No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."

No transparency = unconstitutional.

[LeftRight]

Actually, the country was not founded on a tax revolt. It was founded on a taxation without representation revolt. They didn't feel that it was fair for their government to tax them while not ALSO providing for them to have their representatives present before the taxes were passed.

As for who wrote the tax laws and who oversees the IRS...... We do, indirectly, through our REPRESENTATIVES in the Congress and the White House.

[dragonlady620]

I rest my case.

[exhale09]

and now that we have firmly established that tax avoidence has consequences....it is time to go after all of those "off shore accounts and bogus tax loopholes for the wealthy" right?

[bygollymissmolly]

Nope. That's all perfectly legal whereas making a mistake on your income taxes brands you a "tax cheat" or "tax avoider".

Actually, I question the legality of these off-shore tax shelters. Hoping that under the Obama Administration the IRS will stop auditing people who make $20,000 a year and start auditing the real tax cheats. For the last 8 years the bulk of IRS audits have been of people/couples who make under $50,000 a year and the rich have been ignored.

[NASCARLiberal]

All IRS obligations should be dropped for anyone making under $20K per year. How does anyone LIVE on that little? With the costs involved in getting to/from work, the tiny "standard" deductions, the high cost of groceries and rents, the no write off of mortgage interest if your mortgage is already down to the point where it isn't high enough to be greater than the "standard" ... who with an income of $20K or less has ANY money left for food let alone more money paid out in April to the IRS? I know minimal income senior citizens who've had to sell their properties in order to pay the IRS. That they take more money from these people is nothing short of governmental crime against low income citizens! I suppose when they are reduced to living on the streets with a shopping cart and sleeping bag, then the government will leave them in peace.

[LeftRight]

I don't agree. First, what you are legally obligated to pay IS what you owe.

Second, the answer is to remove the loopholes.

[bannorhill]

Vice President Joe Biden said "Paying taxes is Patriotic".

So it follows that NOT paying taxes owed is unpatriotic.

Should we have the people who are unpatriotic and are tax cheats running the government.

Is that the change that Obama promised?

[bygollymissmolly]

How does making a mistake on your income tax make someone a "tax cheat"? When they figured out their mistakes, they paid their taxes and penalties.

So, how do you feel about all the rich people and corporations who put their money in off-shore tax shelters to avoid paying US income taxes. I think that's a much bigger problem than people who made a mistake on their income tax return.

[bannorhill]

No. When they wanted to take public office they paid their taxes. Geithner only paid for (2) years of his mistake when the IRS caught him. He paid the other (2) years when he was appointed by Obama.

[dmb]

I pay my Taxes, and suffer penalties and interest if I am late.

[vippy]

Who are the tax cheats, mostly the ones with plenty income and it makes me wonder why they
are getting so greedy. I, for one, can't pull the same, there is no cheating when filing taxes,
nothing to deduct but the government gets plenty. And if you make more than $12,990 then the
social security wants one of every two dollars back. We can't win. And guess again, why the
fair tax is not going through. It would be too simple and one could not cheat, ergo it won't fly!

[CalexenderJ]

I don't understand your distinction between the taxes that one is legally required to pay (which includes all the legal loopholes) and what one "legitimately and ethically owes". What does one "legitimately owe"? 15%, 25%, 40? Is what you ethically owe the amount of taxes you would pay if you didn't take advantage of adjustments and credits that most people aren't aware of? There are far too many variables in people's situations (i.e. wages, number of kids, investments, business income/losses, medical payments, etc.) and the tax law is too sprawling for anybody to determine what one "ethically owes" outside of what is legal.

If my accountant tells me I owe 1% in income tax due to a set a particular circumstances, and I have that opinion triple checked, do I "ethically owe" more because I could afford to pay more? And if so, are you suggesting it's more important that I pay what I "ethically owe" rather than what I legally owe? And if so are there situations in which what one "ethically owes" is less than what one legally owes? And if so in that situation is it more important that one pays what they "ethically owe" rather that what one "legally owes"

I think what you are trying to say (or what you should be trying to say) is that the tax code should be simplified so that in virtually all cases what a person legally owes in taxes seems fair and ethical.

[bygollymissmolly]

Well, then, it's time to close all those tax loopholes that allow you to pay 1% in taxes.

A recent audit showed that the top 400 richest people in this country paid an average of 17% in income taxes. So is that fair when an average worker pays from 20% to 40%?

[AnotherMcIntosh]

"or the code of values of America should be changed to "Finding creative but legal ways of avoiding paying taxes is more important than paying the taxes you legitimately and ethically owe.""

You don't directly mention it, but it's clear that your post was undoubtedly prompted by recent news events. Some people selected by Obama to be in governmental leadership positions have, of course, been found to have not paid their taxes.

Are you suggesting that any one of them, or all of them, found "creative but legal ways of avoiding paying taxes"?

Did Geithner, for example, do this before being selected to head the Treasury Department?

No tax provision authorizes a parent to claim a deduction for a child's recreational expenses or, more specifically, the cost of sending a child to summer camp. No accountant, no matter how timorous or ineffective "at confrontation," could lawfully authorize a client to claim such a deduction. Geithner did this. The law doesn't allow this. And neither he nor anyone else should even consider excusing such misbehaviour on an imaginary or nonexistent accountant.

Geithner was also specifically told, in writing, that he had an obligation to pay certain employment taxes. He failure or refusal to pay the tax liability was not due to any creative planning by an accountant.

A great many middle-class and working poor pay all of their income tax obligations. There is no good reason why Geithner, Daschle, and all other Administration nominees shouldn't do the same.

[nee]

Funny how it's not okay for Daschle to become Health and Human Services Secretary because he didn't pay his taxes, but it's okay that the Treasury Secretary didn't pay his taxes. Who's the one who is going to be managing our money? What's wrong with this message?

[LeftRight]

First, in the case of Treasury Secretary Geitner it was a mistake that many Americans working for foreign companies make, in that the company will not withhold the monies covering your OASDI and Medicare taxes. Additionally, once he DID discover the mistake, he paid the taxes back, with interest.

Second, I don't know the situation with Senator Daschle, but it's a MUCH larger tax payment owed, and it's his INCOME taxes, not his payroll taxes.

[jingles32]

Well, the country was with full knowledge, willing to elect a man who "didn't pay his taxes," a man who was complicit in one of the biggest savings and loan scandals in our history; the MSM said NOTHING, the public apparently, could have cared less. Yet now the MSM is all up in arms! How ironic that same said man would not even meet the ethical standard to be confirmed as a member of his own Cabinet. Yet last night, there he was on Hannity, pontificating; labeling Geithner and Obama, unethical. Everyone who chooses to serve in government should be required to meet the same ethical standards that any member of the Cabinet is required to do. And let's start with each and every member of Congress.

What's wrong with "the message" is that there is no "message." Any so called standard blows with the wind; conforms, ajdusts, redefines itself as needed or required.